The Corrupt Federal Bureaucracy and the Consumer Financial Protection Bureau

12 min readOct 26, 2016

By Newt Gingrich and Brian Wise

This is no ordinary political time.

At no point in recent history have Americans been so cynical about their government as they are today.

Three out of four Americans–fully 75 percent–feel corruption is “widespread in government,” according to a recent Gallup survey.[1] “Corruption” is a strong term. “Widespread” is the opposite of a hedging word. And 75 percent is a big number. For comparison, just 63 percent of Venezuelans say the same about their country’s leaders.[2] Almost everyone, in other words, believes this government is very largely corrupt.

Not coincidentally, Americans are increasingly afraid of the bureaucratic state. In a recent survey conducted by Chapman University, 58 percent said they were “afraid” or “very afraid” of the corruption of government officials.[3] That’s more people than feared terrorism, cyber attacks, digital snooping, biological weapons, economic collapse, or credit card fraud.

Shockingly, but also not coincidentally, nearly one third of Americans (29 percent) said in another recent poll that they could imagine themselves supporting a military coups. Among Republicans, 43 percent said they could envision supporting a military takeover in certain circumstances.[4] That is simply a stunning response in a country with a long tradition of constitutional limited government and the rule of law–and especially from the party that prizes that heritage.

These numbers suggest that this is no ordinary political time. Our normal assumptions about what animates our politics and what motivates voters are likely to be upset by the intensity and urgency of these overriding concerns. The extraordinary events of this presidential election season serve only to confirm this observation.

When an overwhelming majority of the people believe the government is corrupt, we should pay attention. When Americans fear the state more than they fear terrorism, something profound is occurring. When one in three think a military coups might be a good idea, we should take a very serious look at what government has done to inspire these beliefs.

The federal government is out-of-control.

The short answer is that Americans are right. The government in general–and the bureaucratic state in particular–is corrupt. It is out-of-control. It will require radical change to put it back under the control of the people.

Generally speaking, our unelected bureaucrats interpret and enforce rules that they themselves have written, under expansive readings of vague instructions given to them by a Congress that has all but abandoned its most important Constitutional powers. The American people really do live by the rule of bureaucrats, who are for all practical purposes above the law. The bureaucracies are, quite literally, lawless instruments of pure power.

These dictatorial powers extend to virtually every area of American life: where we work, what we eat, how we raise our children, what we are permitted to buy. All of these zones and more are governed by rules–written and unwritten–that bear only the most tangential connection to any law passed by the elected representatives of the people.

Our bureaucratic dictatorial class uses its privileged position not to govern as disinterested experts but to pursue the kind of ideological and fantastical agendas often held by people who believe they should be given the power to make our choices for us. Thus, the Environmental Protection Agency is staffed by radical environmentalists, the Department of Health and Human Services is staffed by people determined to reengineer the nation’s health system, and the Department of Education by people who imagine themselves at the top of a national school board.

In each of these capacities, the bureaucrats add regulations upon regulations to kill jobs and economic growth. Their priorities are often maniacally at odds with those of ordinary Americans.

And yet, even while they destroy opportunity for millions of Americans, these unaccountable elites are rewarded extraordinarily well for their continuous effort to accumulate power.

Five of the ten wealthiest towns in America are suburbs of Washington, D.C,[5] and six of the country’s ten richest counties are home to commuters to our nation’s capital.[6] The Washington, D.C. metropolitan area has the highest median income in the U.S. (about $90,000 per household), and the city itself has a stunning per capita income of $74,733, which is especially impressive when you consider how impoverished some of the city’s neighborhoods are.[7]

Moreover, despite the lawlessness that characterizes the profession, it is almost impossible to fire government bureaucrats. In fact, according to a recent analysis by USA Today, “Federal employees’ job security is so great that workers in many agencies are more likely to die of natural causes than get laid off or fired.”[8]

Clearly, the professional political and civil service class that staffs the monolithic concrete office buildings on our national mall is doing well by telling Americans what to do.

The Consumer Financial Protection Bureau is emblematic of this dysfunction.

Perhaps no federal agency exemplifies the pathologies of the bureaucratic state as thoroughly as the Consumer Financial Protection Bureau, or CFPB. The agency was created as part of the 2010 Dodd-Frank law, a monstrosity that has so far generated rules that “could fill 28 copies of Leo Tolstoy’s War and Peace,” or nearly 14,000 pages of regulations.[9] It is the perfect case study in the corruption of the bureaucratic system.

The CFPB is lawless.

The Consumer Financial Protection Bureau acts as judge, jury and executioner in administering laws it has invented through an interpretation of its authority that appears unlimited.

The CFPB has discovered that the mere threat of its regulatory authority allows it to pronounce and enforce new rules only tangentially connected to any law passed by Congress. And since the CFPB’s regulatory authority covers much of the country’s financial system–services on which everyone depends–the agency has found it can issue, in effect, new laws applying to dozens of industries that use the financial system, but which are beyond its normal purview. It simply has to threaten access to financial services for those who don’t comply.

The Bureau uses tactics similar to those pioneered by the FDIC, Treasury Department and Justice Department in a project chillingly named “Operation Choke Point.” In Operation Choke Point, these federal agencies conspired to put law-abiding American companies out of business through fear of the examination process.

They did so by pressuring banks and payment processors to deny service to entire categories of perfectly legal businesses–effectively crippling those industries’ ability to function. A 2011 document from the FDIC names 30 industries of focus, including “ammunition sales,” “firearms sales,” “pay day loans,” “coin dealers,” “online gambling,” “tobacco sales,” “racist materials,” “pornography,” and “telemarketing,” among others.[10]

Banks have been intimidated into telling these legal businesses that they can no longer serve them. The bankers explained apologetically to their former clients that regulators have insisted they drop clients in specific industries. In one typical notice, obtained by the Washington Post, a banker advised a business that “based on your performance, there’s no way we shouldn’t be a credit provider. Our only issue is, and it has always been, the space in which you operate. It is the scrutiny that you, and now that we, are under.”[11]

In many cases, according to a report published last year by the House Oversight and Government Reform Committee, regulators have targeted these legal industries out of “personal animus,” and “effectively ordered banks to terminate all relationships” with an industry that senior officials said in emails they “literally cannot stand.”[12]

President Obama explained recently that he is “most frustrated” by his inability to pass gun control laws through the Congress, so perhaps it is no surprise that the gun industry has been singled out for targeting under these tactics. As the Washington Times reported, banks and payment processors have been terminating the accounts of law-abiding gun dealers across the country.[13]

The U.S. Consumer Coalition obtained recordings made by a Wisconsin firearms dealer, Mike Schuetz, in which his banker tells him flatly that federal regulators instructed the credit union on specific accounts it should drop. As Breitbart reports:

“[Federal] examiners…came in and looked at our accounts…looked at our books,” one official of Heritage Credit Union is heard telling Schuetz on one of the tapes. “Here’s some accounts that we feel that we’re going to regulate you on…and kinda put the screws to us as far as what we could and couldn’t do. The regulatory and compliance issues that we said earlier are true. We never used to have to do that stuff…and our hands are tied by it.”

Other audio recordings are equally chilling. “You wouldn’t believe the regulations we have and when they came in and nailed us on that [accounts] there were about a dozen of them crawling around the building,” a Heritage Credit Union official is heard on the tapes telling Schuetz.[14]

This utterly lawless behavior shows just how unconstrained federal bureaucrats feel by their statutory authorities by their ostensible missions, or by the rule of law.[15] In using tactics similar to Operation Choke Point, the CFPB has been able to leverage its powers far beyond what Congress intended and beyond what is appropriate for any federal agency.

The CFPB is unaccountable to the people.

The unprecedented regulatory overreach at the CFPB would be alarming even if the Bureau was subject to the typical checks and balances that characterize the normal working relationship between Congress and executive branch agencies of the federal government. Amazingly, however, the CFPB manages to conduct these activities entirely independent of Congressional appropriations while flouting Congress’s oversight authority.

That’s because the CFPB isn’t funded the way normal agencies are, as part of the annual Congressional appropriations process. This is the process that allows the people’s representatives to exert power and apply pressure to the unelected officials who implement their legislation. Instead, it’s funded out of a fixed percentage of the Federal Reserve’s annual budget–which itself is at the discretion of no one but the Federal Reserve. This deprives Congress of one of its core Constitutional powers and one of its only means of checking the actions of a federal agency.

The Bureau’s incredibly unaccountable structure is made worse by the fact Congress does not even have the power to impeach the CFPB’s director as it can many senior officials. The director can only be removed from office by the president, and even then only in limited circumstances. This toxic combination means that the agency is almost entirely unaccountable to both Congress and the president, and by extension, the American people.

Perhaps this is why the agency feels so comfortable treating Congressional overseers with contempt. In one case, the Bureau ignored for nearly a year Congress’s request for information about CFPB’s regulation of auto-lenders.[16] In another instance, when Congresswoman Ann Wagner asked the director about the cost of the Bureau’s headquarters during a Congressional hearing, he replied, “Why does that matter to you?”[17]And the same director failed to answer straightforward questions about his knowledge of Operation Choke Point when asked in another hearing.[18]

The CFPB is secretive.

Ever since the 9/11 terror attacks gave new urgency to intelligence gathering–and especially in the wake of the Edward Snowden revelations about the NSA two years ago–Americans have been debating the proper limits of government data collection. Yet for all of the controversy over the NSA’s phone program, which captured metadata from Americans’ calls for national security purposes, hardly anyone is aware that the CFPB is scooping up much more sensitive information about American citizens, and for much less legitimate purposes.

The CFPB aims to monitor at least 95 percent of all credit card transactions in the U.S. by the end of 2016. Toward that end, the Bureau is already collecting and analyzing data from at least 600 million credit card accounts each month (7 billion records in the last year alone). And it’s not just credit card data. The CFPB is gathering data on 22 million private-label mortgages every month, 5.5 million student loans, 2 million bank accounts with overdraft fees, and on hundreds of thousands of auto sales, credit scores, and deposit advance loans.[19]

These secretive programs amount to a data-gathering operation more intrusive than many of our most controversial intelligence activities. And like those national security programs, they are taking place without consumers’ knowledge and without the ability for consumers to opt-out. Unless they have been tuned into occasional Congressional oversight hearings, consumers are entirely unaware that government bureaucrats are pouring over their credit card transactions every month, looking for new products to regulate. Even worse: at no point are consumers required to consent to this government snooping.

Perhaps unsurprisingly–at least to anyone familiar with the CFPB’s lawlessness–these collection programs are explicitly illegal, as Section 1022 of the Dodd-Frank law (that created the agency) explicitly prohibits them. The law bars the Bureau from collecting data “for purposes of gathering or analyzing the personally identifiable financial information of consumers.” Yet this is exactly what the agency is doing with impunity.[20]

The CFPB is scooping up more information about law-abiding Americans than any government agency should be permitted to collect for reasons unrelated to national security. In a recent U.S. Consumer Coalition poll conducted by Zogby, just one in five Americans said they believed the CFPB should be allowed to gather credit card statements without consumers’ knowledge. That bureaucrats feel entitled to do so, even in violation of the law, is a sign of just how brazen their lawlessness is.

The CFPB is corrupt.

The CFPB’s behavior often bears closer resemblance to that of mobsters or criminals than that of genuine public servants. One of the CFPB’s most blatantly corrupt activities, for instance, is its thuggish campaign to shake down auto dealers and car loan lenders.

As the Wall Street Journal describes:

The consumer bureau has been waging a proxy war against car dealers by shaking down the banks that provide auto loans, which the dealers then offer to car buyers. The bureau’s political activists don’t like that some borrowers pay higher rates than others, and they believe racial discrimination is the reason.

But lacking hard evidence, they’ve embraced a method of guessing which customers are black and which ones are white based on their last names and addresses. Then the regulators demand settlements from banks and finance companies whenever it looks like the customers the regulators guess are white appear to be getting a better deal than the ones they guess are black. The goal is to extract cash and get banks to agree to limit dealer discretion in offering different rates.[21]

In other words, the Bureau is making up fake evidence of racial discrimination, threatening auto dealers and lenders, and shaking them down for hundreds of millions of dollars in fines.

What do they do with all of that money, reasonable people might ask? It goes into an agency slush fund now estimated at hundreds of millions of dollars, ostensibly for the benefit of “victims” of the alleged discrimination but which the Bureau can’t account for particularly well. As of May 2014, there were nearly $93 million in undisbursed funds in the account, according to a GAO analysis.[22] Even when the Bureau does distribute funds to “victims,” it’s unclear how or why it decides who gets the money and how much they get. As one report put it, “The GAO found that the CFPB failed to document the factors that the CFPB administrator considered in deciding to allocate $13.4 million for consumer education and financial literacy programs.”[23]

The corruption doesn’t end with secret slush funds paid for by mugging legitimate companies. The dictatorial bureaucrats at the CFPB want to make sure they have appropriate facilities for their corruption. That’s why the agency is spending more than $216 million to renovate its headquarters in Washington, D.C.–a building the CFPB doesn’t even own and for which the entire assessed value is $50 million less than the renovation costs.[24] The updates were originally supposed to cost $55 million, so this price represents at least a 300 percent cost overrun.[25]

The luxury headquarters is in line with overall compensation at the CFPB, where bureaucrats make a staggering $118,000 on average. Only one in 4 employees make less than $83,000, which is almost three times the individual median income nationwide. A third of CFPB employees make more than $136,000 a year. And according to an analysis by the Washington Examiner, “hundreds of CFPB officials are paid more than Supreme Court Justices, senior White House officials, members of Congress, and all 50 state governors.”[26]

This is public corruption of the most appalling kind: not of the occasional, selfish individual employee but a systematized corruption of bureaucrats who brazenly flout the law, shirk accountability, spy on Americans, and spend their days threatening law-abiding businesses they don’t like–all from the comfort of a luxurious headquarters while paying themselves six-figure salaries.

It’s exactly the kind of behavior that leads three out of four Americans to say “corruption is widespread” in government…and that leads a majority to fear bureaucrats more than they fear terrorists. Sadly, the American people are right in their assessment. We do need a revolution to address these problems–not on the battlefield, but at the ballot box.

Newt Gingrich is a former Speaker of the US House of Representatives and advisor to the US Consumer Coalition.

Brian Wise is the President of the US Consumer Coalition (www.USConsumers.org).

[1] http://www.gallup.com/poll/185759/widespread-government-corruption.aspx

[2] http://www.gallup.com/poll/161756/special-briefing-chavez-legacy-venezuela-future.aspx

[3] https://www.washingtonpost.com/news/inspired-life/wp/2015/10/21/forget-ghosts-and-zombies-this-halloween-americans-greatest-fear-is-their-government/

[4] https://today.yougov.com/news/2015/09/09/could-coup-happen-in-united-states/

[5] http://time.com/100987/richest-towns/

[6] http://www.forbes.com/sites/tomvanriper/2014/04/01/americas-richest-counties-2014/

[7] http://www.breitbart.com/big-government/2014/09/19/boomtown-dc-region-has-highest-median-household-income/

[8] http://usatoday30.usatoday.com/news/washington/2011-07-18-fderal-job-security_n.htm

[9] http://thehill.com/regulation/finance/312205-dodd-frank-regs-dwarf-war-and-peace

[10] http://www.fdic.gov/regulations/examinations/supervisory/insights/sisum11/managing.html